Small Cap Value Report (Tue 21 Feb 2023) - TRI, NMRP, REVB, SPR, FIF

21st Feb '23 by Paul Scott

44 comments 7461 reads

Good morning from Paul & Graham.

Explanatory notes -

A quick reminder that we don’t recommend any stocks. We aim to review trading updates & results of the day and offer our opinions on them as possible candidates for further research if they interest you. Our opinions will sometimes turn out to be right, and sometimes wrong, because it's anybody's guess what direction market sentiment will take & nobody can predict the future with certainty. We are analysing the company fundamentals, not trying to predict market sentiment.

We stick to companies that have issued news on the day, with market caps up to about £700m. We avoid the smallest, and most speculative companies, and also avoid a few specialist sectors (e.g. natural resources, pharma/biotech).

A key assumption is that readers DYOR (do your own research), and make your own investment decisions. Reader comments are welcomed - please be civil, rational, and include the company name/ticker, otherwise people won't necessarily know what company you are referring to.

Agenda /Summaries

Paul’s Section:

Trifast (LON:TRI)

63p (down 32% yesterday)

Market cap £86m

Trading Update & Directorate Change

London, Monday, 20 February 2023: Trifast (LSE: Main Market symbol: TRI) provides the following update on the trading performance for the financial year ending 31 March 2023 ("FY23") and notification of a Directorate change.

This announcement hit the shares very hard (down c.40% in early trades yesterday morning), although there was some partial recovery later yesterday.

Profit warning - adj PBT guidance for FY 3/2023 is reduced from £14.3m to £9.0m. Obviously that’s a disappointment, but the trouble is, it doesn’t take a lot to change, on £243m forecast revenues, for the profit number to change a lot. This is why the PER is quite a bad way to value companies, because profits can be so volatile, depending on circumstances that can't be predicted easily.

What’s gone wrong? The main factor seems to be de-stocking by an Asian customer, which has offset gains made from price rises & cost savings. Higher interest costs on “elevated” net debt of £44m is also mentioned.

What are they doing about it? Another strategic review has been carried out, resulting in cost savings of £5m annualised (it’s not clear if these are new savings, or increased…

Unlock with Email

Unlock with Google

Already have an account?
Login here

The Boon Fund

21st Feb '23

On Springfield Properties (LON:SPR) - from the SCVR article - "Given the market conditions, they reduced their land buying activity and wanted to make additional land sales, but could not get “acceptable value” for them."

Looks like another way to read this is that there's a lack of market demand now for housing land. Or the prices of housing land has plummeted, below the value that Springfield is willing to sell.

Either way, this is bad for valuations for existing landbanks in housebuilders, as well as land sellers like Harworth (LON:HWG) .

Dojosan

PIs were seeking for short catalysts for the SP to rise. They didn't get any assurance from the management. Not only that, management did not take any questions on the spot, asking viewers to send in questions, this led to another immediate fall of c10%, driven by ST traders. All in all, seen the same trend in Angle (LON:AGL) , Diurnal (LON:DNL^K22) and now Polarean Imaging (LON:POLX) . In addition, biotech is certainly NOT soup of the day.

Options were expiring - Tharisa (LON:THS) management explain their selling on LSE BB.

davidjhill

I'd be careful of extrapolating either across the sector or to valuations of existing landbanks.

The market is dislocated right now but think of it as liquidity led. The volatility caused in the mini budget has led to a pause in purchasing of land but not necessarily of valuations. What you are seeing is a 3 month lag effect filtering through. In essence major buyers are waiting to see if there is any distress to pick up assets cheaply. If you are not a forced seller then generally land and housing values aren't plummeting but buyers are sitting on their hands waiting for stability. A better indication will be in 2 to 3 months time.

JASVFS

Hi Caduceus, The FT covered the thorough Swedish research properly if the subject interests you.

Caduceus

I've known many people in my career whom could work out the area of a jam jar but couldn't get the lid off! lol.

chris2021

Sylvania Platinum (LON:SLP) Platinium group metal prices tend to pretty tightly track each other so irrespective of where SLP makes its profirts, the platinium price is an excellent guide, based on recent years experience, to SLP's share price. https://matthey.com/products-a...

May I ask if you could direct me to said article please?... or maybe provide useful search engine keywords?

No worries if not!

Rusty2

Thanks, I did no know that, had enough trouble finding out, if they were buys or sales. Why can't they just state sold/bought x number @ x pence.

Tharisa (LON:THS) has not reacted to the Sylvania Platinum (LON:SLP) update.

Raleigh4343

I couldn’t open a jam jar at breakfast, so decided to have jam tomorrow.

MiserableJacktPotato

Intelligence is merely one factor. Other factors are things like agreeableness, dedication, work ethic, location, ambition, reliability. Intelligence (or lack of) only goes so far, it works the other way too. If you're not very bright but work long hours in a dangerous job you can make serious money.

d024912

Reading Paul's comment about Finsbury Food (LON:FIF) pension's scheme. As an experiment, I decided to see if ChatGPT could simplify the paragraph. I copied and pasted the following:

Could you simplify this statement,

The Group has one Defined Benefit Pension Scheme within its Memory Lane Cakes business in Cardiff. All remaining Group companies have Defined Contribution Schemes. The Memory Lane Cakes pension Scheme has been closed to future accruals and new members since 31 May 2010. The net pension deficit (before related deferred tax) was £6,582,000 at 2 July 2022. The Company entered into an Asset Backed Contribution (ABC) arrangement on 18 May 2022 to improve the funding of the Scheme. An investment of £16.0 million will be invested by the Company to the Scheme, the trustees have purchased a loan note from the Group via a Scottish Limited Partnership (SLP) structure, which will pay a defined income return to the Scheme over 20 years. The fixed repayment plan amounts to an income of £763,000 being paid to the Scheme annually. The estimated duration of the liabilities is around 15 years.

This was ChatGPT's reply:

"This statement is about a group of companies that provide retirement benefits to their employees through pension schemes. One of the companies, Memory Lane Cakes, has a pension scheme that promises a specific benefit amount to employees when they retire, regardless of how much money is put into the scheme. This is called a Defined Benefit Pension Scheme. All the other companies in the group have pension schemes where the amount of retirement benefits is based on how much money is put into the scheme. This is called a Defined Contribution Scheme.

The Memory Lane Cakes pension scheme has been closed to new members since May 31, 2010. The scheme currently has a shortfall of £6,582,000, meaning that it doesn't have enough money to pay all the promised retirement benefits.

To help fund the pension scheme, the company has entered into an agreement called an Asset Backed Contribution arrangement, where they will invest £16.0 million into the pension scheme. The trustees of the scheme have purchased a loan note from the company through a Scottish Limited Partnership structure, which will pay a fixed income of £763,000 annually to the pension scheme over the next 20 years.

The company estimates that the pension scheme will need funding for around 15 years to meet its obligations to employees who have already earned retirement benefits."

Not bad, I am impressed that it could simplify the paragraph. I need to understand how it works. At the moment ChatGPT is just a black box to me. But I can understand that Google has to do something soon.

Patrickmylnetrade

underrated comment Raleigh. had me chuckling

Bouden54

I don't think that's really the case - Rhodium down from 30,000 a couple of years ago to around 11, 000 today. Platinum fallen by a much smaller amount over that period. The two metals have quite separate dynamics, and even over the last year have performed very differently.

Exactly. But wouldn't Harworth have less land sales in the meantime... Which means less revenues reported. Hopefully it is just a temporary freeze, and the pent up demand comes roaring back... with no loss of pricing...

Monty Carlo

Finsbury Food (LON:FIF)

The ABC is a bit like a "sale & lease back" with your own pension scheme.

The one most people have heard of was what M&S did with their pension scheme - they transferred properties to their pension scheme via an SLP (Scottish Limited Partnerships are used for technical reasons) and then the pension schemes benefitted from the rents of those properties.

If the sponsor goes bust the pension scheme has possession of the properties (or a lease on the properties).

I would guess the loan note is just structuring to avail the pension sceme of the income from the assets contributed.It is a fairly neat way of plugging a deficit in your DB pension scheme with assets you have on your balance sheet, without losing control of those assets in practice.

There are several flavours and the assets involved may not be real estate - it could be inventory or a portfolio of brand rights etc.

The problem with making big cash contributions to a scheme is that you can't ask for the money back if the deficit gets smaller, whereas contributing the assets (or in effect the income from the assets for a fixed period) smooths the hit to cashflow, while persuading the trustees that they are still OK if the sponsor goes bust.

Still did not explain what an Asset Backed Contribution really is...

It reads like me in high school trying, badly, to write an essay by just paraphrasing stuff :)

Ned Kelly

Sylvania Platinum (LON:SLP) The interesting thing is that Net Cash at 31 Dec was $123.9mm (102.4mm), almost 40% of the market cap, so the PE should be about 3. What are they planning to do with all that cash?

DavidMcCabe

There is an Investor Meet Company presentation tomorrow at 12 noon, which is free to sign up for. They may answer the question then.

David

marigold

22nd Feb '23

Somebody posed the question, would you rather have a high IQ or luck? Then he said it is better to have luck because then you can pay people with high IQ.

Small Cap Value Report (Tue 21 Feb 2023) - TRI, NMRP, REVB, SPR, FIF

Agenda /Summaries

Paul’s Section:

Trifast (LON:TRI)

Unlock the rest of this article with a 14 day trial

About the Author

Paul Scott

44 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...